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B-Corps: The Commodification of Social Welfare

Among the many issues facing the nonprofit sector today, one of the biggest has to be the questioning of its very purpose. As people become more aware of the social issues plaguing society, some have found alternative models to the sector, which are at the very least seemingly more sustainable that a model that relies heavily on charitable giving and government subsidies. In the past few years, a new business model, benefit corporations (B-Corps), have taken hold and have now begun to threaten the existence of the sector.

In “In the Shadow of the Shadow State,” Ruth Wilson Gilmore describes what she calls the “nonprofit industrial complex” as the connections and complex entanglements between government failure to provide for social welfare, the plethora of organizations that have formed to fill the void, and the grassroots groups that have formed in attempted protest. She writes, “What is wrong is not simply the economic dependencies fostered by this particular set of relations and interests. More important, of forms do indeed shape norms, then what’s wrong is that the work people set out to accomplish is vulnerable to becoming mission impossible under the sternly specific funding rubrics and structural prohibitions that situate grassroots groups both in the third sector’s entanglements and in the shadow of the shadow state;” coopting Jennifer Wolch’s “term ‘shadow state’ to describe the contemporary rise of the voluntary sector that is involved in direct social services previously provided by wholly public New Deal/Great Society agencies.” (Gilmore, 45,47) The critique here is not only the government’s dependency on the private sector to provide the social services that it fails to employ, but also the rise of the strength of the web, which is further cementing its place as a required sector of our economic structure as well as the costs associated. For example, nonprofit groups that have grown from grassroots efforts now employ researchers, writers, fundraisers, directors, marketers, etc., mostly underpaid professionals who are necessary to wade through these entanglements, but all of whom contribute to overhead and detracts from spending on the product or service at the core mission of the group. Gilmore’s writing on the rise of the shadow of the shadow state attempts to demystify the complexity of the nonprofit industrial complex, she explains the long timeline of government abandonment and hypothesizes that exists a “fear that a sudden and complete suspension of certain kinds of social goods will provoke uprisings and other responses that, while ultimately controllable, come at a political cost.” (Gilmore, 45) And while the pace of privatization had been sufficient enough to spawn more and more nonprofits instead of protest, the current economic crisis has proven this model to be unsustainable. The government is cutting spending, reducing subsidies and individuals are now more conservative when it comes to giving, forcing nonprofits to do more with less. However, out of any good crisis comes interesting solutions—but at what impact to the nonprofit sector? A dialectical and logical analysis shows that we have moved from government sponsored social welfare, to government funded private organizations who sponsor welfare, and with a continued lack of resources the next invention would of course come from cord—completely private social welfare—essentially nonprofits that profit.

At the end of 2012, Rick Cohen wrote in interesting piece, on NonprofitQuarterly.org, titled “Ch-Ch-Changes: Nonprofit sector predictions for 2013,” where he lays out some key issues that lay ahead for the sector. Beside the prediction that charitable giving will rise in new year as the result of a rise in the tax rate for the very wealthy as part of President Obama’s financial plan—making giving an attractive means to receive tax breaks, a more notable section about the changing nonprofit sector, discusses in detail the potential role of “hybrid organizations” as a competitor to the sector. In the wake of the current financial crisis and cuts in government spending, Cohen predicts that more of these models will become creative solutions to the crisis. Particular emphasis is placed on B corporations in which, citing Robin Rogers he predicts, “will ‘restructure relationships among…public and private sectors;’” and:

“Mark Fulop of Facilitation & Process LLC is very strong on this issue: ‘We will see the first serious challenges of B corps into local and state government contracting processes that have historically been directed to community nonprofit[s]. If so, perhaps not this year but the next, there will be increased competition between the private (B corp) and public (nonprofit) agencies for contract revenues for services such as basic needs (such as healthcare, mental health services, low income housing).’” (Cohen, 2012)

So what exactly is a B-Corp? It is essentially a private, for-profit company that is bound not only by its obligations to its shareholders, but also to some moral purpose. The idea came about because it was felt that because normal corporations are meant to serve first and foremost, profits for shareholders, it was impossible for a normal corporation to take on a moral slant, as it could come into direct conflict with its primary objective. From a for-profit perspective, this seems to ignore that this is actually one of the many reasons for the existence of nonprofit groups. State laws that enable these groups are spreading fast across the country, as they are nothing but benefit for the government, and simply add a layer of responsibility to a traditional corporation, thus benefit corporations have a legal obligation to be socially-minded, but received no fiscal benefits other than the ability to market themselves as such.

Proponents of B-Corps have hailed the hybrid structure as a means to make change. Neil Grimmer, cofounder of Plum Organics, a B-Corp that specializes in baby food, recently wrote an editorial for the Huffington Post boasting the potential for B-Corps to bring about a “new economy,” which he describes as “an economy that will not only allow us to create profitable business today, but to build a productive society for our children’s tomorrow.” (Grimmer, 2013) His argument is the B-Corporation are successful because of its moral obligations, rather than despite it. He writes, “A skeptic might propose that by formally committing to social and environmental standards, a company might be sacrificing profitability for purpose – in short, that it’s bad for business. I assert that this is a misnomer to be flipped on its head. The success of some of today’s most beloved brands—like fellow B-Corps Warby Parker, Etsy, Patagonia, Ben & Jerry’s – has not been despite their social and environmental missions, it’s been because of them.” (Grimmer, 2013)

So what is going here? Gilmore, in her proposal later in “Shadow State” warns us “there is no organizational structure that the Right cannot use for its own purposes,” (Gilmore, 50) and essentially what has happened is exactly that, a commodification of what Peter Frumkin explains is the “deeply rooted need of individuals to be part of something bigger than themselves.” (Frumkin, 29) Our own altruism has been coopted and the image of which is being packaged sold back to us. Let’s take a look at Ben & Jerry’s, one of Grimmer’s examples. The average price for pint of Cherry Garcia in the United States runs roughly between $3.50 and $4.00 going as high as $5.99 in upscale markets like New York City. By contrast, a 1.5 quart of Edy’s vanilla, an east coast brand owned by Deyer’s, will cost roughly the same amount for more than double the quantity, and is often found on sale in New York City supermarkets for as little as $2.99 per 1.5 quart. When Deyer’s faced pressure to increase profit it did this by through attempt to mask their reduction in carton sizes while keeping prices the same and through the use of milk whey protein as opposed to actual milk solids, rendering the product a “frozen dairy dessert” and not actual ice cream, not a very cache marketing gimmick. Ben & Jerry’s has not only a commitment to make actual ice cream, but to also do so through use of fair trade products, all while maintaining a strict social and environmental program of philanthropy—and they have been successful. By this token it can be suggested that customers of Ben & Jerry’s, are willing to pay more for a quality product and take on the cost of commitment to social values that the company passes along to the consumer. In essence this makes Ben & Jerry’s a niche luxury product and commoditizes social welfare while providing benefit to some.

While this might seem like a great marketing ploy to get wealthy ice cream aficionados to subsidize the cost of social benefits, there are implications for the nonprofit sector and society in general that need to be considered. By passing the cost of social welfare on directly to the consumer, funding becomes more individualized as consumers may now handpick with their pocketbook, which cause célèbre to support. This is forcing nonprofits (and B-Corps alike) to stand in market-style competition in order to be sustainable increasing reliance on image and marketing. Cohen writes, “Ultimately, the challenge is for nonprofits to explain what they do and why it is valuable, distinctive, and, in terms of social change, why it is not particularly open to replication or replacement by the L3Cs, B corporations, or plain old market players of the world.” (Cohen, 2012) The problem with marketing is that for a nonprofit, there is a fine line between marketing and advocating, an act barred for some legal entities.

Luckily, homemade ice cream is not deemed by society to be a basic entitlement and fits into the luxury product niche well and its employees can be well paid, but there is also an even bigger issue at stake. It becomes more likely that market failure will result in greater inequalities. B-corporations cannot be deemed be to be a permanent solution. Gilmore reminds us of a touching point in the last paragraph of “Shadow State,” “Finally grassroots organizations that labor in the shadow of the shadow state should consider this: that the purpose of the work is to gain liberation, not guarantee the organization’s longevity. In the short run, it seems the work and the organizations are an identity: the staff and pamphlets and projects and ideas gain some traction on this slippery ground because they have a bit of weight. That’s true. But it is also the case that when it comes to building social movements, organizations are only as good as the united fronts they bring into being.” (Gilmore, 51) While there are obviously some benefits to the B-Corp model, namely economic sustainability, Gilmore throws a wrench and questions the purpose of sustaining the organization as opposed to achieving liberation. The danger on relying on the market is that it puts us into competition and it divides rather than unites. B-corporations like Ben & Jerry’s will always need to exist because of their other primary focus of making a profit. As a result, there is little incentive to advocate for sweeping reform of our economic system and in fact, if push comes to shove, B-corporations actually have an ‘out’ if necessary as in most states, B-Corp legislation allows for one to revert back to a normal corporation with a 2/3 vote of its board.

To conclude, lets imagine a world where the B-Corp model has largely supplanted that traditional nonprofit sector. There are several questions that remain to be answered. What is the role of the government? As of now, B-Corps legislation only requires a yearly report. How much influence will shareholders have over the public well-being? Who are the shareholders? What if the shareholders were the public? Wait, isn’t that what the government is for?